Island living - the Lantau property market

Lantau’s increasingly complex property market faces an equally complex – and possibly luxurious – future. Whether or not our tranquil isle is headed for the kind of fiery property landscape so common in the rest of the SAR, is a question many residents are asking.

It may elicit a “Wow!” or two when a flat in Mid-Levels sells for upwards of HK$500 million – nearly double the nominal GDP of Tuvalu – though at the rate prices have skyrocketed no one is truly surprised.

But when the so-called luxury market seeps from its traditional hotspots at The Peak, Repulse Bay and Mid-Levels, it raises eyebrows. When a 3,800 square-foot villa at Sino Land’s forthcoming Botanica Bay, in Cheung Sha, sold for HK$109 million in April, and became the Outlying Islands’ first nine-digit property, followed by a 5,500 square-foot unit in the same project selling for HK$209 million, eyebrows got a workout.

Not far from Botanica Bay is Swire Properties’ WHITESANDS on South Lantau Road, which launched for sale in late September. Swire chose the site specifically for the beautiful nearby beach, and tapped UK architects Paul Davis + Partners to design the 28 detached houses. Prices start at approximately HK$50 million.

Room for a little luxury

A great deal of the motivation behind those super-sales is rooted in the location of the developments. The Peak’s claim to the most expensive property in the world notwithstanding, Lantau’s picturesque and low-density south-side now trumps its counterparts at Stanley and Repulse Bay for relaxed lifestyle living, a factor that is becoming increasingly crucial to elite property buyers and investors.

“South Lantau, in our opinion, is the next Sai Kung for those that think Sai Kung is starting to become overdeveloped,” says Jones Lang LaSalle’s (JLL), Hong Kong head of research, Denis Ma. “There is a major difference, however – namely that accessibility is more restricted on South Lantau. Driving on roads in the area requires permits. The type of real estate being built on South Lantau, mainly detached houses, positions it more as a new up-and-coming luxury area.”

Thomas Lam, senior director, head of valuation and consultancy for Knight Frank in Hong Kong, certainly sees Botanica Bay as a special case. “Sino and Swire’s super high-end developments are not common,” he notes. “The long-term plan for Lantau is for the middle-class, in a mix of public and private housing.”

As Thomas sees it, the focus right now is in and around Sunny Bay, the airport district and the planned CBD3 at Tung Chung.

“Based on zoning, the rest of Lantau is not residential; it’s commercial, logistics, retail and hotels,” notes Thomas. “And even around Tung Chung, land is very limited, so if they have to expand it will be very difficult.” Also on tap is an East Lantau Metropolis with potential MTR or bridge connections to western Hong Kong.

BOTANICA BAY

Lantau remains a better bargain

As it stands, Lantau remains a better bargain than the rest of Hong Kong. According to data from JLL, Hong Kong’s mass-market real estate averaged HK$13,000 per saleable square foot in the third quarter of 2015, versus just HK$9,000 on the low end in Tung Chung, peaking at the same HK$13,000 for prime properties, like the area’s few semi-detached houses.

In the luxury sector, Hong Kong averages HK$33,000, while South Lantau (on the strength of the spike stemming from Botanica Bay) prices range from HK$23,000 to HK$37,000 per saleable square foot. Lantau isn’t the only target for upmarket development, as the government looks towards the west side of Hong Kong Island and the overlooked north-western areas of the New Territories.

“We are also starting to see more luxury developments appearing in areas around Yuen Long,” explains Denis, conceding, “The pricing in Yuen Long, however, has not been as strong as in Lantau.” Prices across Hong Kong are predicted to hold steady for the rest of this year, and fears of an interest rate hike continue to loom. But the most minor of blips can change the numbers.

Million-resident status a way away

Also making waves is talk of the ring road that would circle the island, connecting all its far-flung corners. The idea has been floated (and shot down) in the past, and has reared its head again as government and developers allegedly discuss – behind closed doors – exploiting the island as a key component of the Pearl River Delta economy.

In October, the South China Morning Post’s Tom Yam itemised some chilling details, among them moving the island’s jails and converting the land into high-end residential plots, and adding tourism-based commercial developments that would link Cheung Sha, Pui O and Tong Fuk. A MTR link could be in the offing, as could additional housing for 1 million new residents.

The plan was drafted by the Lantau Development Advisory Committee, created last year. “Its 30 members comprise 10 senior government officials, plus 20 individuals from the private sector and academia. Among the 20, 11 have declared business interests in Lantau or family with landholdings in Lantau, and two are pro-government legislators,” wrote Tom.

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Knight Frank’s Thomas isn’t fearful for Lantau at the moment, and estimates any significant movement would be well down the road. “If it happens that’s looking beyond 2020, or even 2030. Before that [there] has to be the bridge, which is delayed to 2018 now, and the third runway. Also, the airport’s land lease expires in 2047. There are many uncertainties on Lantau right now,” he says.

Additionally, potential luxury developments, in the immediate term, won’t rival what’s found on Hong Kong Island or Kowloon. “To build more, the government would have to change the zoning and all the master planning [of Lantau],” Thomas explains. “But I don’t see how they could do it. Many parts of Lantau are designated country park – very few pieces of land can be transferred to private developers.”

While he admits the next step is indeed discussion of developing the parks, asked point blank if that’s going to happen, Thomas lets loose a nervous laugh at the PR nightmare the government would have on its hands. “No. I don’t think so – maybe the boundaries, but not the main part of the parks.”

Good, bad or ugly, Lantau’s real estate future is clearly in flux and, as a result, so is its position as a weekend respite from hyper-urbanism. But the island’s financial and property potential is too rich to resist, as is evidenced by the array of infrastructure projects already underway.

Whether Lantau is headed for million-resident status and commercial vitality remains to be seen, and regardless of how it appears, environment impact – a key to the tourism plans – must be assessed. For now, Lantau’s luxury market will remain limited, and Tung Chung will remain the centre for mass-market development.

“There are still other areas identified by the government that will likely be developed first, namely the North East New Territories New Development Areas and Hung Shui Kiu New Town,” finishes JLL’s Denis. “The planning for these new areas is more advanced than Lantau.”